Lalit Chaturvedi & Others Vs State of Uttar Pradesh & Another (Supreme Court of India)
Supreme Court Quashes FIR in Money Recovery Dispute, Holds Criminal Proceedings Abuse of Process
The Supreme Court allowed the appeal filed by Lalit Chaturvedi, Mukesh Sharma and Manoj Chaturvedi and set aside the judgment of the Allahabad High Court, which had dismissed their application under Section 482 Cr.P.C. on the ground of delay/laches. The Supreme Court quashed the FIR and all resultant proceedings, including the charge-sheet, while clarifying that it had not expressed any opinion on the complainant’s civil rights.
The proceedings originated from FIR No. 287/2019 registered on 30.08.2019 at Police Station Hapur Dehat, District Hapur, on the complaint of Sanjay Garg, proprietor of Garg Timber Products. The complainant stated that between 01.12.2015 and 06.08.2017, he supplied wood-waste fuel worth Rs.5,69,31,811/- to Asar Eco Power Limited and received Rs.3,76,40,553/- through RTGS, leaving Rs.1,92,91,358/- outstanding.
According to the complaint, despite repeated demands, the appellants did not pay the outstanding amount. The complainant alleged that the goods had been purchased dishonestly and fraudulently and that he had been threatened when he demanded payment. The FIR was initially registered for offences under Section 406 IPC and Section 506 IPC. Following investigation, Section 420 IPC was added.
The police subsequently filed a charge-sheet under Section 173 Cr.P.C. alleging offences under Sections 406 and 420 IPC against all the accused and Section 506 IPC against Manoj Chaturvedi. The charge-sheet substantially reproduced the complaint and stated that the complainant’s money had not been returned and that he had been threatened when he demanded payment.
Allahabad High Court Proceedings
The appellants approached the Allahabad High Court under Section 482 Cr.P.C., seeking quashing of the charge-sheet dated 12.12.2019, the cognizance/summoning order dated 16.01.2020 and the criminal proceedings.
The State opposed the application on the ground that it had been filed after considerable delay. The learned A.G.A. submitted that the applicants had failed to explain the laches and therefore did not deserve the Court’s indulgence. The applicants were unable to provide a reasonable explanation for the delay.
The Allahabad High Court accordingly dismissed the Section 482 application on the ground of laches. The High Court’s order did not quash the charge-sheet or examine the substantive question whether the allegations disclosed the offences under Sections 406, 420 and 506 IPC.
Supreme Court Challenge and Issues
Before the Supreme Court, the appellants challenged the High Court’s refusal to exercise its Section 482 jurisdiction. The Supreme Court considered whether the allegations, even if accepted as correct, disclosed the ingredients of cheating, criminal breach of trust and criminal intimidation, and whether the criminal proceedings could continue in circumstances where the complainant’s grievance principally concerned non-payment of outstanding contractual dues.
The Supreme Court also considered the High Court’s reliance upon delay/laches and the fact that the charge-sheet had already been filed. It held that neither circumstance constituted a valid reason to refuse to examine whether the allegations actually disclosed a criminal offence.
Supreme Court’s Reasoning
The Supreme Court first considered the requirements of Section 420 read with Section 415 IPC. Referring to Mohammed Ibrahim and Others v. State of Bihar and Another, it noted that cheating requires deception through a false or misleading representation, dishonest concealment or another act or omission, followed by fraudulent or dishonest inducement and the resulting delivery or retention of property or another specified consequence.
The Court also relied upon V.Y. Jose and Another v. State of Gujarat and Another, reiterating that a contractual dispute or breach of contract per se should not result in criminal proceedings. For cheating, fraudulent or dishonest intention must exist from the beginning of the transaction. Section 482 Cr.P.C. enables the High Court to prevent a person from being subjected to criminal litigation where the allegations do not disclose a criminal offence.
Applying these principles, the Supreme Court found that the complaint’s substance was the complainant’s grievance that the appellants had failed to pay the outstanding amount of Rs.1,92,91,358/-. The supplies had been made over a period from 01.12.2015 to 06.08.2017, and substantial payments totalling Rs.3,76,40,553/- had admittedly been made.
Even assuming the complaint’s assertions to be correct, the Court found no allegation establishing deception, false or misleading representation, dishonest concealment or dishonest inducement at the time the contracts were entered into. The necessary ingredients of cheating were neither stated nor capable of being inferred from the complaint.
The Supreme Court also observed that the complainant had effectively sought police intervention for recovery of money. The police, however, do not possess the power or authority to recover money or act as a civil court for recovery of contractual dues.
As regards Section 406 IPC, the charge-sheet did not explain how the statutory ingredients of criminal breach of trust were satisfied. The Court emphasised that criminal breach of trust requires entrustment followed by dishonest conduct. In the present case, there was no allegation of entrustment. The transaction was one concerning the sale of goods.
The Court further noted the distinction between cheating and criminal breach of trust: cheating requires dishonest intention at the inception of the transaction, whereas criminal breach of trust requires entrustment, with the dishonest intention arising subsequently. The necessary foundation for Section 406 IPC was absent.
With respect to Section 506 IPC, although threats were alleged, the charge-sheet did not provide details or particulars regarding when, where or in what circumstances the alleged threats were made. In the Supreme Court’s view, the allegations appeared to have been made with the object of activating the police machinery for recovery of the outstanding money.
The Supreme Court held that it was for the complainant to pursue a civil remedy for recovery of the outstanding amount. Initiation of criminal proceedings for an oblique purpose was held to be bad in law and an abuse of the process of law.
Final Ruling and Effect on High Court Judgment
The Supreme Court set aside the Allahabad High Court’s judgment and allowed the appeal. It quashed the FIR and all resultant proceedings, including the charge-sheet.
The Court expressly clarified that its decision concerned only the existence of criminal liability. It made no observation concerning the civil rights of Sanjay Garg, thereby leaving those rights unaffected.
The Supreme Court’s ruling therefore terminated the criminal prosecution notwithstanding the High Court’s earlier dismissal of the Section 482 petition on the ground of laches. The decisive basis for the Supreme Court’s intervention was that, even accepting the complaint’s allegations, the essential ingredients of the offences under Sections 406, 420 and 506 IPC were not established.
Cases Discussed
- Mohammed Ibrahim and Others v. State of Bihar and Another, (2009) 8 SCC 751 — ingredients of cheating under Section 420 IPC.
- V.Y. Jose and Another v. State of Gujarat and Another, (2009) 3 SCC 78 — contractual breach and criminal proceedings; requirement of dishonest intention from inception.
- Hira Lal Hari Lal Bhagwati v. CBI, (2003) 5 SCC 257 — cited in V.Y. Jose in relation to the distinction between civil disputes and criminal offences.
- Indian Oil Corporation v. NEPC India Ltd., (2006) 6 SCC 736 — cited in V.Y. Jose concerning misuse of criminal proceedings in commercial disputes.
- Vir Prakash Sharma v. Anil Kumar Agarwal, (2007) 7 SCC 373 — cited in V.Y. Jose.
- All Cargo Movers (I) (P) Ltd. v. Dhanesh Badarmal Jain, (2007) 14 SCC 776 — cited in V.Y. Jose.
- Wolfgang Reim and Others v. State and Another, 2012 SCC OnLine Del 3341 — cited concerning the distinction between cheating and criminal breach of trust.
- Mahindra and Mahindra Financial Services Ltd. and Another v. Delta Classic (P.) Ltd., (2011) 6 Gauhati Law Reports 604 — cited concerning Sections 406 and 420 IPC.
- Mukesh Sharma v. State of Himachal Pradesh, 2024:HHC:35 — cited concerning the distinction between cheating and criminal breach of trust.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Leave granted.
Heard the learned counsel for the parties.
First Information Report1 No. 287/2019 for the offence(s) punishable under Sections 406 and 506 of the Indian Penal Code, 18602 was registered on 30.08.2019 with Police Station – Hapur Dehat, District – Hapur, Uttar Pradesh vide the complaint made by Sanjay Garg, who is respondent no. 2 in the present appeal. The relevant portion of the complaint, as converted into the FIR, reads as under:-
“Sir, it is submitted that the applicant is the proprietor/owner of the firm Garg Timber Products located in Village Patna, Police Station Hapur Dehat District Hapur, in which the applicant deals in waste wood (buying and selling of wood). From 01.12.2015 to 06.08.2017, the applicant had supplied wood waste fuel worth Rs 5,69,31,811/-along with the bill to the owner of Asar Eco Power Limited, situated at Kosi Kala Village Dotana District Mathura viz. VK Chaturvedi S/o Shri Murari Lal Chaturvedi, Mob. No. 9879211625, Address Managing Director, Asar Eco Power Limited, 630 Village Dotana NH-2 Umbrella District Mathura UP and Resident of 1402 14th Floor Lasirna CHS Limited JP Road Andheri West Mumbai 400058 and Manoj Chaturvedi Director, son of Shri Murari Lal Chaturvedi, resident of 348 Nangla Paisa Mathura Uttar Pradesh Mob. No. 9719861000 and Lalit Chaturvedi Director, Asar Eco Power Limited Kosi Kala Gram Dotana District Mathura Mob. No. 9358704070 and Mukesh Sharma Director Asar Eco Power Limited Kosi Kala Gram Dotana District Mathura Mob. No. 8859008302, for which RTGS of Rs.3,76,40,553/-was made by the above four persons. The applicant is continuously demanding the outstanding amount of Rs. 1,92,91,358/-, but the above four persons are not ready to pay the remaining amount to the applicant and there is a clear refusal and they are saying that we buy goods from people like you by lying. The above four persons, with the intention of deceiving the applicant and extorting money, purchased the wood waste dishonestly and fraudulently with the intention of benefiting themselves and causing loss to the applicant and usurped the remaining amount of Rs. 1,92,91,358/- of the Applicant. The above four persons are vicious, cunning and domineering people who are not paying the remaining amount of the applicant on the strength of their dominance and are threatening to kill if the demand is made. Due to which the applicant is quite mentally disturbed and there is a threat to his life and property from the above mentioned people. The applicant went to the police station to file a report about this incident but the police station officials refused to take any action and register the applicant’s report. Therefore, you are requested to direct the SHO, Police Station Hapur Dehat, to register the report of the applicant and take the strictest legal action against the above mentioned four people and to give the applicant’s money to him. Date Sd Hindi Sanjay Garg Applicant Sanjay Garg Son of Late Shri Madanlal Garg Resident of 1899 New Pannapuri Garh Road Hapur Police Station Hapur Dehat District Hapur Mob. No. 9412218796. Note: I CC 325 Rajeev Kumar certify that the copy of the complaint was typed word for word by me on the computer.”
After the investigation, the police has filed the charge sheet under Section 173 of the Code of Criminal Procedure, 19733, which verbatim reproduces the complaint and, thereupon, refers to the fact that the appellants, namely, Lalit Chaturvedi, Mukesh Sharma and Manoj Chaturvedi have approached the High Court of Judicature at Allahabad and obtained an order granting stay of arrest. Thereafter, it is recorded as under : –
“From the statement of the complainant and independent w1tnesses, it was found that the case is under Section 420 IPC and accordingly, Section 420 IPC was added. It is clear from the documents provided by the complainant and the advocate of the named accused that the named accused committed fraud and did not return Rs.19291358/-to the complainant and the complainant was threatened by the named accused Manoj Chaturvedi when he asked for the money. After thorough investigation, statement by complainant, statement by sources and in detail, crime under section 406, 420 IPC was found against all the accused and along with the above mentioned sections, a case of Section 506 IPC is also being found against Manoj Chaturvedi Chaturvedi. Therefore, charge sheet number 318/19 is presented in the court through challan. Please summon the evidence and punish the accused. The investigation is concluded.”
This Court, in a number of judgments, has pointed out the clear distinction between a civil wrong in the form of breach of contract, non-payment of money or disregard to and violation of the contractual terms; and a criminal offence under Sections 420 and 406 of the IPC. Repeated judgments of this Court, however, are somehow overlooked, and are not being applied and enforced. We will be referring to these judgments. The impugned judgment dismisses the application filed by the appellants under Section 482 of the Cr.P.C. on the ground of delay/laches and also the factum that the chargesheet had been filed on 12.12.2019. This ground and reason is also not valid.
In “Mohammed Ibrahim and Others v. State of Bihar and Another”4, this Court had referred to Section 420 of the IPC, to observe that in order to constitute an offence under the said section, the following ingredients are to be satisfied : –
“18. Let us now examine whether the ingredients of an offence of cheating are made out. The essential ingredients of the offence of “cheating” are as follows:
i. deception of a person either by making a false or misleading representation or by dishonest concealment or by any other act or omission;
ii. fraudulent or dishonest inducement of that person to either deliver any property or to consent to the retention thereof by any person or to intentionally induce that person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived; and
iii. such act or omission causing or is likely to cause damage or harm to that person in body, mind, reputation or property.
19. To constitute an offence under section 420, there should not only be cheating, but as a consequence of such cheating, the accused should have dishonestly induced the person deceived
i. to deliver any property to any person, or
ii. to make, alter or destroy wholly or in part a valuable security (or anything signed or sealed and which is capable of being converted into a valuable security).”
Similar elucidation by this Court in “V.Y. Jose and Another v. State of Gujarat and Another”5, explicitly states that a contractual dispute or breach of contract per se should not lead to initiation of a criminal proceeding. The ingredient of ‘cheating’, as defined under Section 415 of the IPC, is existence of a fraudulent or dishonest intention of making initial promise or representation thereof, from the very beginning of the formation of contract. Further, in the absence of the averments made in the complaint petition wherefrom the ingredients of the offence can be found out, the High Court should not hesitate to exercise its jurisdiction under Section 482 of the Cr.P.C. Section 482 of the Cr.P.C. saves the inherent power of the High Court, as it serves a salutary purpose viz. a person should not undergo harassment of litigation for a number of years, when no criminal offence is made out. It is one thing to say that a case has been made out for trial and criminal proceedings should not be quashed, but another thing to say that a person must undergo a criminal trial despite the fact that no offence has been made out in the complaint. This Court in V.Y.Jose (supra) placed reliance on several earlier decisions in “Hira Lal Hari Lal Bhagwati v. CBI”6, “Indian Oil Corporation v. NEPC India Ltd.”7, “Vir Prakash Sharma v. Anil Kumar Agarwal”8 and “All Cargo Movers (I) (P) Ltd. v. Dhanesh Badarmal Jain”9.
Having gone through the complaint, which was registered as an FIR and the assertions made therein, it is quite clear that respondent no. 2/complainant – Sanjay Garg’s grievance is regarding failure of the appellants to pay the outstanding amount, in spite of the respondent no. 2/complainant – Sanjay Garg’s repeated demands. The respondent no. 2/complainant – Sanjay Garg states that the supplies were made between the period 01.12.2015 and 06.08.2017. The appellants had made the payments from time to time of Rs. 3,76,40,553/- leaving a balance of Rs. 1,92,91,358/-.
We will assume that the assertions made in the complaint are correct, but even then, a criminal offence under Section 420 read with Section 415 of the IPC is not established in the absence of deception by making false and misleading representation, dishonest concealment or any other act or omission, or inducement of the complainant to deliver any property at the time of the contract(s) being entered. The ingredients to allege the offence are neither stated nor can be inferred from the averments. A prayer is made to the police for recovery of money from the appellants. The police is to investigate the allegations which discloses a criminal act. Police does not have the power and authority to recover money or act as a civil court for recovery of money.
The chargesheet also refers to Section 406 of the IPC, but without pointing out how the ingredients of said section are satisfied. No details and particulars are mentioned. There are decisions which hold that the same act or transaction cannot result in an offence of cheating and criminal breach of trust simultaneously.10 For the offence of cheating, dishonest intention must exist at the inception of the transaction, whereas, in case of criminal breach of trust there must exist a relationship between the parties whereby one party entrusts another with the property as per law, albeit dishonest intention comes later. In this case entrustment is missing, in fact it is not even alleged. It is a case of sale of goods. The chargesheet does refer to Section 506 of the IPC relying upon the averments in the complaint. However, no details and particulars are given, when and on which date and place
10 Wolfgang Reim and Others v. State and Another, 2012 SCC OnLine Del 3341; Mahindra and Mahindra Financial Services Ltd. and Another v. Delta Classic (P.) Ltd., (2011) 6 Gauhati Law Reports 604; Mukesh Sharma v. State of Himachal Pradesh, 2024:HHC:35. ↩
the threats were given. Without the said details and particulars, it is apparent to us, that these allegations of threats etc. have been made only with an intent to activate police machinery for recovery of money.
It is for the respondent no.2/complainant – Sanjay Garg to file a civil suit. Initiation of the criminal process for oblique purposes, is bad in law and amounts to abuse of process of law.
In view of the aforesaid discussion, the impugned judgment is set aside and the present appeal is allowed quashing the FIR and resultant proceedings, including the chargesheet.
We clarify that the present appeal only deals with the question of criminal offence. We have not commented or made any observations on the civil rights of respondent no. 2/complainant – Sanjay Garg.
Pending application(s), if any, shall stand disposed of.
Leave granted.
The appeal is allowed in terms of the signed order.
Pending application(s), if any, shall stand disposed of.
Notes:
1 For short “FIR”. ↩
2 For short “IPC”. ↩
3 For short “Cr.P.C.”. ↩
4 (2009) 8 SCC 751. ↩
5 (2009) 3 SCC 78. ↩
6 (2003) 5 SCC 257. ↩
7 (2006) 6 SCC 736. ↩
8 (2007) 7 SCC 373. ↩
9 (2007) 14 SCC 776. ↩
